27 Replies

Is it standered for an appraiser to not include a unit on the appraisal because the door was boarded over? What to do after the fact that I paid for an incomplete appraisal came back with replacement cost $120k....value...$15k?

Replacement cost is irrelevant... especially on older buildings.  If you were using that as a basis for the appraisal you were misled.

If it was boarded over I wouldn't imagine it being completely ignored, but it would have little value as it present isn't usable space.

Other than not matching the replacement cost, what is your basis for believing the appraisal is bad?

What's the bet that there is at least one similar property nearby that recently sold for ~$15k (be it foreclosure, distressed sale or a total rehab job)?  I would be concerned if the door being boarded over DIDN'T affect the appraisal.  You might be able to ask the Appraiser to SHOW you a similar comp, but if they can't, THEN question their methods.  (Hopefully your circumstances aren't too badly affected by such an appraisal).  Cheers...

all of comps were for 2 units, the sq foot does not include the 4th unit...ect

The cost approach was x15.....Really....ROI in 15 this normal?

Originally posted by @Stephan Haas :

The cost approach was x15.....Really....ROI in 15 this normal?

Not sure of correct understanding on "x15"? Certainly ROI in 15 months is NOT normal (or if it is, where do I get me some of that?)... Can you elaborate? Cheers...

A property of four units or less is technically a residential property.  Unfortunately, this usually translates into a valuation based upon market price (of comparable properties sold in the area); where a multi-unit would be primarily valued on cash-flow it produces.

If you have one or more units which are not habitable, the appraiser may disallow (or severely discount) that space .... in the commercial world, if they are not producing cash-flow, they would have little-to-no value. 

Note that this is always a bad thing. We are looking at a small REO at the moment where on 1/6 of the units are presently let and a full 1/3 are not rent-ready. When preparing our offer, we allow no value for those units not producing revenue ... in-fact they are a liability at the moment. In this situation, you have to look at the deal from the angle of both a flip and a buy-and-hold.

appraisal says monthly rent estimate...$450x3units = $1350 monthly income

however it is a 4 unit, so it should be $1800 monthly

it was called a "gross rent multiplier" of 15...

I am aware all 4 units need some work....but realisticly where do you buy a 4 unit with a $1800 monthly income for $15,000...that doesnt need a little work?

A gross rent multiplier of roughly 8 gets you a "1% rule" property. So 15 is like a 0.5% ...

At those low rents, you should be buying more like the "2% rule", with GRM less than 5 ...

@Stephan Haas  unless you are the seller, use this to get a better deal. If you are the seller maybe partner up with someone to fix it up.

I have a PA for $13,800...but the hard money lender wants to see 65% LTV....i never thought it would appraise at $15k...i was assuming 30-60k...its assesed at 60k

Is this an appraisal trying to support a $15k price?  I must have missed something. The costs of the appraisal and lending costs as a % must be like 30%!   

@Steve, I am trying to purchase this multiunit, I have a PA for $13,800... I needed it to appraise at $29,000 to get $20,00 to purchase and rehab.

Are you sure the HML will lend up front for both purchase and rehab?

@Stephan Haas  Did you have any communication with the appraiser?  My best luck with them is to meet them before, during and after the appraisal...


Check to see if the appraisal was completed "as is" or "subject to" the renovations your going to make. Not really familiar with hard money lenders but I was under the impression they lend on ARV so then the appraisal should be "subject to" the rehab you are going to make. That just means the appraised value should reflect the property value after the rehab. If it's "subject to" and you are going to rehab the 4th unit then it should be included. As well as all other improvements you plan to make. If the lender is only lending on it "as is" you may be stuck.

@Stephan Haas  Just wondering, have any of the units been built as an addition to the existing building? For example, a duplex added two more units some time after. 

The reason I ask is because, if the unit has been built after the fact, the unit may not be properly registered with the city. If one of the units is not properly permitted and registered at the courthouse, the appraiser cannot include it as part of the living space. On the appraisal, the 4th unit may just appear as an "accessory". Which also means you will need to make sure the property has been permitted properly.

Are all the units on separate water and electric meters, to include the common areas?

This post has been removed.

I didnt think getting funded for a $20k loan to purchase a $2k monthly income property would be so hard!!

Originally posted by @Stephan Haas :

I am aware all 4 units need some work....but realisticly where do you buy a 4 unit with a $1800 monthly income for $15,000...that doesnt need a little work?

Aah, now I see what you mean. Yes, I would still "want me some of that" if it is true about the income and the "little work" but at this stage it looks like neither of those points are PROVED. And you can hardly blame the Appraiser if he comes up with a TRUE appraisal. You are hoping that the Seller just doesn't know what they are giving away for next to nothing, but what if they HAVE done their homework beforehand? I am fairly sure that there are hundreds of properties out there being sold for prices where if the hyped ROI was ACTUAL, then they likely wouldn't be up for sale at all, leave alone the ridiculously low prices being asked for! It seems that the major factor which is often neglected to be mentioned is the NEIGHBORHOOD (often being a 'D' at best - look up that topic elsewhere on BP) whereby as soon as it's vacant, all appliances and pipes mysteriously disappear out of it overnight! Must needs: good property managers and rehab contractors (but first, just where did that good Lender hide?). Despite many issues, I believe these ARE the sort of deals that CAN reap sizeable rewards! Also, make sure that the Purchase Agreement will entail a proper Warranty Deed transfer with no Liens attached or other nasty Tax or Ownership surprises. Cheers...

@brent, its between whats called the "student getto" and the getto...8 blocks from a major college. it still has all the copper...4 furnaces, 4 water heaters, and sold in 06 for $89k and is a forclosure. It is Bank owned!

@Stephan Haas ,

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@Stephan Haas , sounds like you haven't found the right "hard" lender yet ("hard" meaning that they WILL lend when it is "hard" to borrow from a normal Bank, so they can justify charging a "hard" interest rate). Still looks like a worthwhile pursuit.  

Where your tenants are likely to be transient students who have been priced out of the closer apartments to their college, your ROI numbers probably need to be more conservative than expecting $1800/m; $1300/m could be more like it.

@Steve Babiak said "A gross rent multiplier of roughly 8 gets you a "1% rule" property. So 15 is like a 0.5% ...At those low rents, you should be buying more like the "2% rule", with GRM less than 5 ..."

Didn't you say your Appraiser was calculating that you would only be getting back 1/15 ROI per month = money back in 15 months)? Anyway, time for you to be getting that "no/low money down" thingy happening. All the best...

(I didn't mean to say "that you would be only getting back 1/15 ROI per month"; should have read "that you would be getting back 1/15 ROI per month")...

@Raymond B.  , I did that shift @? in the above post, but the blue highlight disappeared as soon as I continued writing (but in this post, it hasn't)! What's up with that? Cheers...

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